probably had short service, having been hired for maintenance work in the summer of 1933. Only about 60,000 were expected to return. These were presumably the longer service employees who were on furlough or leave.

In the cost calculations for the Railroad Retirement Act it was assumed that the carriers would tend to bar from their service former employees who had no rights to reentry, since to rehire them would be costly by reason of their prior service credits. Under the new bill, if they reenter, there will be no such credits. Hence, no allowance has been made for this change in estimated disbursements.

The sole differences in the two sets of estimates presented, therefor, is attributable to the change in the death benefit.

The estimated disbursements as given on the accompanying table are related to two pay rolls. The first of these pay rolls is the "estimated pay roll." This pay roll was made upon the assumption that the level of individual pay would be 5 percent lower than in 1929 for persons of the same age and period of service. For example, employees engaged in maintenance work, of more than 10 years' service, aged 45, received in 1929 an average of $1,765. It was assumed that their average compensation in the future would be $1,677. Similar averages were computed for each age, with employees classified into six occupational groups.

Because of changing age and occupational composition, the pay roll estimated on the above basis declines gradually from about $2,150,000,000 estimated for 1935 to about $1,750,000,000 in 1965.

The estimated pay roll initially is considerably higher than the actual pay roll. The second pay-roll base, $1,600,000,000 is the actual figure for 1934 for all railroads.

Because of the pressure of time, estimates have been made only through 1965.

Comparison of estimated annual disbursements, new railroad retirement bill, and Railroad Retirement Act, 1935–65

1 This figure assumes disbursements to begin when payments would have started under the Railroad Retirement Act. If the effective date of a new act were Sept. 1, 1935, disbursements during 1935 would be about $4,000,000. Disbursements in later years would not be affected.

Mr. KRAUTHOFF. What is your estimate of the cost of these annuities from the 1st of December 1935, say, to the 1st of July 1936, the end of the current fiscal year?

Mr. LATIMER. We have made it on calendar years, but I would judge that the cost would be about $35,000,000.

Mr. KRAUTHOFF. I am not sufficient of an actuary to understand it, but why does the cost of this thing increase from year to year? Are there more being retired each year than the year before?

Mr. LATIMER. Yes. There are more people of each age who will survive to 65. That is, there are more people aged 64 than there are aged 65, and on a mortality basis there will be more people aged 65 in 1936 than in 1935. That will go on until about 1960.

Mr. KRAUTHOFF. You mean more people each year?

Mr. LATIMER. Yes.

Mr. KRAUTHOFF. That seems strange to me.

Mr. LATIMER. I think all those who have collected figures on retirement on railroads agree as to that.

Mr. EKERN. May I ask a question, Mr. Chairman?
Senator BROWN. Yes.

Mr. EKERN. You referred to the pay roll in 1929 being somewhat higher?

Mr. LATIMER. Than in 1934.

Mr. EKERN. Is it not a fact that the pay roll ran something over 3 billions?

Mr. LATIMER. Yes. We have used not the pay roll in 1929 but the level of pay for each individual as of 1929, less 5 percent.

Mr. EKERN. And the aggregate pay, of course, was very much. higher?

Mr. LATIMER. Oh, yes. We have merely taken the averages of 1929 for each age and we lowered that by 5 percent, and on the age distribution we used that same average less 5 percent.

Mr. EKERN. But the income in percentage on the total pay roll would, of course, be enormously increased if you had this increased pay roll?

Mr. LATIMER. Yes. I am merely giving this as a basis for comparison. I am not assuming that. I should have added that assumption. We are assuming that the number of persons in service remains constant at 1,100,000.

Mr. EKERN. And that the pay roll remains constant?

Mr. LATIMER. No. We made two assumptions, one that the pay roll remained constant and another that the individual workers drew 5 percent less than the average of 1929 for the same age, service, and occupation.

Mr. EKERN. That is the reason for the difference in these two columns here?

Mr. LATIMER. Yes.

Mr. EKERN. That applies to both the estimate for the new bill and for the act?

Mr. LATIMER. Yes; for both these calculations we assumed 1,100,000 persons constant.

Mr. EKERN. And with regard to this $1,600,000,000 of estimated pay roll which is uniform throughout this period, if that went back to $3,000,000,000 as it was at the highest stage, or $3,395,000,000, it would be approximately twice that figure—

Mr. LATIMER. Not necessarily, because the future service credits would increase. It would not go back in the same ratio. I should judge if the pay roll went back to $3,200,000,000-well, I had better not make any judgment on that.

Mr. EKERN. This would naturally be very slowly?

Mr. LATIMER. Yes; there would be a very great lag in that, of

course.

Mr. KRAUTHOFF. This has occurred to me. You mean that having regard to the ages of the people in the employ of the railroads there will be more people at the age of 65 next year than at the age of 60?

Mr. LATIMER. Oh, yes.

Mr. KRAUTHOFF. You did not mean according to population generally?

Mr. LATIMER. That is also true, but it is not quite so true as it is with the railroads, because the railroads have an unusually high age distribution.

Mr. KRAUTHOFF. The population increases?

Mr. LATIMER. Not only that, but the proportion of people 65 or over will, according to the mortality rates which we had during the decade of 1920 to 1929 or 1921 to 1930-the proportion of people over 65 will double in the next 30 years.

Mr. KRAUTHOFF. Mr. Chairman, reference was made to a statement by Mr. Eastman, and I wanted to call especial attention to a document that had already been introduced in evidence, the transcript of the record in the suit brought, called "Alton Railroad and others against the Railroad Retirement Board"; and Mr. Eastman in that case filed an affidavit in which he made as part of his affidavit an address that he delivered on September 19, 1934; and I want to read just what he said about the Railroad Retirement Act [reading]:

In this connection, let me say a word about the recent Railroad Retirement Act. I was not satisfied with that act, and so indicated in my appearances before congressional committees, because I believed that it had not been thoroughly worked out and that its adoption could well be deferred. Nevertheless the act is sound in general principle, and it will not be so much of a burden upon the railroads as they would have the country believe. The retirement of superannuated employees through this act and there are many such employees in the railroad world-will give opportunities for younger and more efficient men, and it will also make it easier to obtain economies in operation which are quite possible of accomplishment.

We have nothing else at this time, Mr. Chairman.

Senator BROWN. We will adjourn until 1 week from today at 10 o'clock in the forenoon.

(Whereupon, at 4:25 p. m., the subcommittee adjourned until Monday, July 22, 1935, at 10 a. m.)

RETIREMENT SYSTEM FOR EMPLOYEES OF CARRIERS

MONDAY, JULY 22, 1935

UNITED STATES SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON INTERSTATE COMMERCE, Washington, D. C. The subcommittee met at 10 a. m., in room 412, Senate Office Building, Senator Fred H. Brown (chairman of the subcommittee) presiding.

Present: Senators Brown (as chairman of the subcommittee) and Wagner.

Senator BROWN. You may proceed, Judge Fletcher.

Mr. FLETCHER. If the committee please, we have just one other statement to make, and that is by Dr. Parmelee, in accordance with the announcement which was made to the committee when it adjourned last week. I only want to make this brief additional statement. At the time when the chairman inquired as to the amount of time that would be necessary, I think we stated that Dr. Parmelee would be able to complete his statement in three-quarters of an hour. However, we are under the necessity this morning of discussing four separate pension plans, so to speak. We have the bill as originally introduced by Senator Wagner. We have the bill which, as result of certain discussion in the House committee, we have come to call the mimeographed bill, which is the bill presented by the brotherhoods as a substitute. We have the mimeographed bill as amended; that is to say, certain suggestions as to amendment made by Mr. Ekern representing that group. That is three. Then we have the mimeographed bill with certain amendments suggested by the Brotherhood of Locomotive Engineers, Mr. Corbett. So, since there are four separate plans to be discussed, although Dr. Parmelee has made every effort to condense his statement into as brief compass as possible, I am afraid I shall have to ask the indulgence of the committee for a little more time than 45 minutes.

Senator BROWN. Take all the time you require, Mr. Fletcher.

Mr. FLETCHER. So with that statement I would like to ask the committee to hear Dr. Parmelee.

STATEMENT OF JULIUS H. PARMELEE, DIRECTOR OF THE BUREAU OF RAILWAY ECONOMICS OF THE ASSOCIATION OF AMERICAN RAILROADS, WASHINGTON, D. C.

Mr. PARMELEE. Mr. Chairman and gentlemen of the committee, my name is Julius H. Parmelee. I am director of the Bureau of Railway Economics of the Association of American Railroads. My headquarters and residence are Washington, D. C. I appear here for the Asso

ciation of American Railroads in opposition to these several bills which Judge Fletcher has outlined.

The railroad retirement bill here under consideration may be analyzed from (a) the legal point of view; (b) on the basis of its soundness as a pension plan; and (c) on the basis of the cost of the retirement system set up by the proposed legislation.

The legal aspects of the proposed legislation have been discussed by the preceding witness.

Senator BROWN. Which bill are you referring to now?

Mr. PARMELEE. I am referring generally to all the bills, making a general statement at first regarding all of them. Then I am going to limit myself, as was pointed out to the committee, to the several bills as I go along.

I have been requested to analyze the legislation from the standpoint that S. 3151, the railroad retirement bill, and S. 3150, the bill to levy special taxes on carriers and their employees, are related companion measures. In what I have to say I shall confine myself to the economic aspects of these bills, namely, the question of the soundness of the retirement system created by S. 3151, its cost, and the burden of the cost on the railway industry as a whole. My testimony as to the cost of the system assumes that the cost is to be imposed upon carriers as defined in the bill, and their employees, by the tax bills S. 3150 and H. R. 8652. If I am incorrect in this assumption, and if the cost is to be borne by the Government and to be raised by general taxation, then my testimony will be equally applicable to show the costs imposed on the Government by this bill.

I turn now, Mr. Chairman, to a discussion of S. 3151. That is the printed bill introduced by Senator Wagner, which is, as I understand it, the bill before this committee.

The bill would give credit to all persons in the employment relation to carriers at the date of enactment of the bill, in calculating their annuities, for all the years they have spent in carrier service prior to enactment. At the same time, it is evident tha future levies on carriers and employees will be made large enough to finance the annuities, both those based on past service and those based on future service as well.

Not only would this feature place an intolerable burden on both carriers and their present and future employees, but it is inequitable in that it calls on future generations to bear the total cost of service rendered by past generations.

First, I draw your attention to the magnitude of the future payments for past or prior service. The figures I shall use are taken from an affidavit prepared and filed by Murray W. Latimer, then Chairman of the Railroad Retirement Board, in the course of litigation of the Railroad Retirement Act of 1934, which was declared unconstitutional by the United States Supreme Court on May 6, 1935. Mr. Latimer was a proponent of that act, and his affidavit was designed to support the validity of the act. The affidavit, Defendants Exhibit 7 in the litigation in the Supreme Court of the District of Columbia, which was appealed to and decided by the Supreme Court of the United States (No. 566-October Term, 1934, Railroad Retirement Board et al., Petitioners, v. The Alton Railroad Co. et al.) was filed October 10, 1934, and appears at pages 206–213 of the transcript of record in that case.